What consumers need to know about credit-card defaults and what you can do

Credit-card defaults are on the rise for Americans, reaching the highest level in 14 years.

U.S. credit-card defaults jumped to a record $46 billion from January through September 2024, according to the Financial Times, citing data analyzed by BankRegData.

With high levels of credit-card debt and high inflation, many consumers have found themselves unable to cover monthly payments, leading some to default.

A borrower goes into default when they miss credit-card payments for more than 180 days, roughly six months. Banks generally take this as a sign that a borrower won't pay the debt anymore, according to Matt Sotir, a financial adviser with New Hampshire-based Equitable Advisors.

Defaulting on credit-card debt can have serious consequences. Among them: a negative impact on credit reports that lead to a long-lasting effect on a person's ability to borrow money.

“These are debts that have a lot of impact," Sotir says. "And I think sometimes people don't realize that, if they missed [a payment], how bad it could be for them in other areas."

Here’s what you should know about credit-card defaults:

What it means to default on a credit card

There are several levels of consequences when you keep missing credit-card payments. It begins with late fees, higher interest rates and a potentially lower credit score. If a borrower doesn't pay for 30 days, the bank considers the credit card “delinquent," and your credit score can be damaged further.

When a borrower fails to make a payment for roughly six months, the bank considers the credit card in default, which means it will close your account and refer you to a collection agency.

“That's where you're going to really have trouble obtaining future credit for a while,” says Chip Lupo of WalletHub.

When a collection agency assumes your debt, they'll reach out via phone, email and mail to encourage you to pay. If it's not paid, the collection agency may take legal action.

How it impacts your credit score

Defaulting on a credit card will mean serious consequences for your credit score. It'll limit how much you'll be able to borrow in the future and how much it'll cost you. If you don't pay your credit-card bill for a month, your credit score will likely fall between 60 and 100 points, says Rikard Bandebo, chief economist for VantageScore.

While there isn't a specific amount of points that your credit score will fall should you default, it will appear on your credit report for seven years, according to Bandebo.

“There's not miracle solutions that once you've missed a payment, or you've gone to default, to simple go back to where you were," he says. "You can't just flip a switch."

Ways to avoid a default

It's best if you pay your credit card in full every month. If you can't, paying at least the minimum monthly payment each month can help you avoid falling further into debt.

“Do whatever you can not to get to the next stage," Bandebo says. "If you're 30 days late, try to avoid getting to 60 days, and absolutely try to do everything you can to avoid getting default."

Other alternatives include contacting a credit-counseling organization or transferring your debt to a 0% interest card, though that typically comes with a fee.

If you find that you can't regularly make payments to your credit cards, Sotir recommends looking at your budget to find which expenses can be cut.

If your expenses outweigh your income, Sotir advises looking for a temporary second job, looking into assets that you can sell or asking family whether they can help while you get back on your feet. Also, some banks offer hardship programs that provide assistance for people who can’t afford large and high-interest credit balances.

What should I do if I default on a credit card?

Whether it’s reaching out to your bank or working with a financial adviser, the quicker you start looking for a solution, the more consequences you will be able to avoid.

Sotir recommends contacting your credit-card company to negotiate the debt since it’s in the bank’s best interest to help you catch up. If your account goes to a collections agency, find out whether they can offer a payment plan or seek help from a nonprofit credit-counseling organization.

Lupo says bankruptcy should be the last option if you have exhausted all other alternatives.